SUDERSHAN SINGH SETHI AND ORS. Vs. SAKHI RESORTS AND FARMLANDS P. LTD. AND ORS.

JUDGEMENT

(1.) IN this case, the petition has been filed by the petitioners under sections 397 and 398 of the Companies Act, 1956, for the alleged acts of oppression and mismanagement on the part of the respondents and the said petition is under consideration for adjudication. Precisely speaking, the company was registered on February 18, 1998 and is maintaining its registered office at Sakhi House, M -47, Green Avenue, Amritsar -143 001. Besides, against the authorised share capital of Rs. 10 lakhs, the issued, subscribed and paid -up capital is Rs. 1,50,000 divided into 1,500 equity shares of Rs. 100 each. The petitioners hold 40 per cent of the paid -up capital and the remaining 60 per cent is owned by the respondents. At the time of incorporation, petitioners Nos. 1 to 3 and respondents Nos. 2, 3, 4 and 5 were promoters and, hence, were appointed as first directors and respondent No. 2 was appointed as the managing director of the company under article 34 of the articles of association. Thus, the respondent -company is a closely held family company as quasi -partnership concern. The company has built up a resort for marriages and other parties and functions at a farmhouse at Village Bal Khurd, Fatehgarh, Churian Road, Amritsar admeasuring 18 Kanal 8 marla. The petitioners' advocate has alleged that the basic trust and confidence was breached by the respondents when the petitioners objected to the style of functioning by respondent No. 2 in the board meetings held on April 28, 2008 and June 24, 2008, when the petitioners protested that entire receipts by way of bookings at the resort have not been accounted for in the books of the company. In addition, there was also clash of interest by the respondents who were carrying on competitive business of hiring the marriage hall at their personal premises at M -47 -48, Green Avenue, Amritsar. Not only this, the petitioners highlighted that thereafter, the respondents are not holding any board meeting or general meeting and no notice of any meeting has been given to the petitioners who are directors and members of the company. Apart from this, the respondents have kept the petitioners in dark about the affairs of the company and are themselves filing the documents and have signed the annual accounts without notice or consent of the petitioners.

(3.) IN his reply, the respondents' advocate submitted that the petition is not supported by the legal and proper affidavit of the petitioners. In addition, it has also been pointed out that the contents of the petition do not call for invocation of the jurisdiction of this hon'ble Board as no case of either oppression or mismanagement has been set out by the petitioners against the respondents. Moreover, it has been alleged that the petitioners were never serious about running the business of respondent No. 1 company and the petitioners had raised their hands and expressed their inability to make any investment. Not only this, in the meeting of the board of directors of respondent No. 1 company held on June 24, 2008, the petitioners came up with absolutely illegal demand of dividing the land of respondent No. 1 company between the two groups in total disregard to the fact that respondent No. 1 -company is an independent legal entity and the assets owned by it are not so divisible. It has also been highlighted that around 2008, the land prices had astronomically gone high and, therefore, the petitioners were keen to sell respondent No. 1 -company which could have fetched around Rs. 2.50 crores. However, the respondents strongly protested to this nefarious design of the petitioners to sell respondent No. 1 -company as it would have spoiled the image, goodwill and reputation of "Sakhi" their trade name built over a long period of 30 years. Besides, the business of "party lawn/resorts" and "banquet halls" is a booming business because of the restrictions imposed by the Municipal authorities on the banquet halls operating in the city areas. The respondents' advocate has vehemently denied that the respondent -company is a glorified partnership of the family members at all relevant times. In fact, there was no written argument or mutual understanding between the parties that the business of respondent No. 1 -company shall be conducted jointly. Furthermore, respondent No. 2 was the managing director of respondent No. 1 -company under whom petitioners Nos. 1 and 3 had run the day to day working of the respondent -company. It has also been denied that in the board meeting held on April 28, 2008 and June 24, 2008, the petitioners ever lodged any protest with regard to alleged non -accounting of the booking amount received in respect of "party lawn/resort". On the contrary, the minutes have been duly signed by all the petitioners and this clearly proves that the annual accounts have always been approved by the petitioners and they have never raised any objections on the same. The respondents' advocate has also highlighted that it is totally frivolous and mischievous on the part of the petitioners to allege that the respondents were doing competing business. In this regard, it has been affirmed that the "banquet hall" belonging to the respondents is located at M -47 -48, Green Avenue, Amritsar, which is right in the heart of the city whereas the "party lawn/resort" of respondent No. 1 -company was located about 12 kms from the city and also, from the banquet hall of the respondents. Moreover, both properties were meant for totally different kinds of functions and one could not have given any competition to the other even going by the standards of a common prudent man.

(4.) THE respondents' advocate has vehemently denied that the respondents were not holding any board meeting or general meeting and no notice of any meeting has been given to the petitioners who were the directors and members of respondent No. 1 -company. Rather, it has been submitted that all board meetings and general meetings have been held with due and proper notice to all the directors and members of respondent No. 1 -company as per the provision of the Companies Act, 1956 and articles of association of respondent No. 1 -company. The respondents' advocate has alleged that the petitioners' only motive and agenda at the moment is to gain out of the appreciation of the land value of respondent No. 1 -company. In addition, it has been vehemently denied that the respondents are not accounting for all the bookings of the "party lawn/resort" in the books of account of respondent No. 1 -company. In fact, the potential business of party lawn/resort was about 5 lakhs from the start of first year of operations of respondent No. 1 -company which by the year 2011, could have easily grown to Rs. 20 lakhs but because of lack of interest and neglect of business of respondent No. 1 -company by the petitioners and their business incompetence, respondent No. 1 -company could not achieve its potential. At the same time, the receipt of Rs. 10 lakhs from the petitioners as share application money is not denied. As a matter of fact, the said amount along with the contributions made by the respondents was utilised for the purchase and development of immovable property admeasuring 11,000 sq. yards over which the "party lawn/resort" has come up and at the same time substantial amount was also contributed by the respondents. The respondents' advocate has also pointed out that it is absolutely frivolous allegation levelled by the petitioners that the respondents have been enhancing their shares in respondent No. 1 -company. Initially, the respondent -company was incorporated with the paid -up share capital of 700 shares of Rs. 100 each amounting to Rs. 70,000. Thereafter, due to the amendment in the Act in the year 2001 -02, the Government made it mandatory that each private limited company was required to have a minimum paid -up share capital of Rs. 1,00,000 as a result of which each of the existing shareholders were issued 100 equity shares of Rs. 100 each and 100 equity shares of Rs. 100 each were issued to Shri Manveer Singh s/o. Shri Maninder Singh Sakhi. This fresh issue of 300 shares was made on December 13, 2002, with the consent and approval of the directors of respondent No. 1 -company in order to comply with a legal requirement which was mandatory for all private limited companies.